Tariffs protect domestic industries?


Rates, in fact, are taxes or duties placed on imported goods or services of the domestic government, making domestic goods cheaper for domestic consumers and imported goods more expensive for companies exporting goods from industry to the domestic industry.

Tariffs are levied, as a rule, the national government in per cent of the declared value of the goods or services and act similar to a sales tax. Unlike the sales tax, however, tariff rates often vary depending on the product or service and do not apply to domestic goods, only imports to the domestic industry.

When high tariffs are levied by the national government, this reduces the volume of imports of the goods or services, because the high tariff leads to higher prices for domestic consumers and high cost of imports for foreign suppliers or manufacturers. Tariffs are also used to create favorable conditions for trade between some countries, while hindering the terms of trade of other countries.

There are two basic types of tariffs imposed by national governments: taxes ad valorem and specific tariff. Ad valorem tax is a percentage of the value of goods or services, while a specific tariff is a tax based on a fixed charge for the quantity or weight of goods.

Tariffs are usually levied by national governments to protect new industries from foreign competition, protecting aging industries against foreign competition, protection from foreign companies offering their products at a price lower than their costs and increase profits.

Do Tariffs Protect Infant Industries?

Many analysts of development policy and industry advocates argue that it is sometimes necessary for the implementation of import tariffs for the protection of child domestic industry from foreign competitors. This argument has existed for centuries: Adam Smith, for example, directly advocated it in “wealth of Nations”, but in practice, the methods of the nursery industry have a poor track record. There are many possible explanations, some of the economic and political.

The infant industry argument does not apply to all types of manufacturers. Industries which require higher economic capital have a more obvious need for government protection from foreign competition. This is because trade and technology are important for long-term economic growth, but the creation of these types of companies is risky and time consuming.

Although this is most likely the results forced the local consumers to pay a higher price for domestic goods, the proponents of this theory suggest that the initial disadvantages are outweighed by future benefits. However, the potential success stories are few and far between. Economists disagree about the importance of tariffs in emerging markets in USA, Germany and Japan during their respective periods of industrialization. Similar rates were tested for key industries in India, Malaysia, Indonesia, Singapore and Hong Kong with very poor results.

One common criticism is that protectionism only works if domestic firms to work well, and if other state laws will allow for sustainable growth. Companies still need access to capital and competitive tax rates. In addition, other countries may respond by imposing its own sanctions. Others suggested that development occurs only where there are gains from trade and tariffs distort trade, investment, and consumption is too much for these achievements were implemented.

(See: the Basics of tariffs and trade barriers.)

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